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Which is more cost-effective: On-premises or hosted UC?

Cost is an important factor when choosing between on-premises and hosted UC. Expert Dave Michels discusses the financial impact of both technologies.

I am in the process of replacing our Index 400 and looking at two options: hosted VoIP provided by Claranet and on-premises services with Avaya's IP Office. My choice is hosted UC because of the rapid deployment and rich features; however, there are ongoing costs. My financial director's choice is on-premises UC because, in addition to its mobility features and resilience, we will own it after financing over five years. Which option truly has the lowest cost?

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Your approach to determining which unified communications (UC) solution has the lowest cost is not simple. The obvious problem is that on-premises and hosted UC are difficult to compare, but the bigger problem is both require different assumptions that are often hard to accurately predict. As with the decision to lease or buy a new car, there's a degree of risk with the assumptions themselves. The determining factors in that debate will include the number of miles driven, the expected resale value and the length of term, which are to some extent guesses. Your financial director believes that having on-premises UC over five years is paid for and thus cheaper. That assumes the technology will be kept for five years, continue to meet your needs and has a low recurring ownership cost. Modern premises-based deployments have higher recurring costs than older systems, however, due to software maintenance.

The straight-up financial comparisons tend to favor premises-based deployments, but hosted UC remains a viable option with broader considerations. The outsourcing element of cloud services can be appealing, as can the disaster recovery considerations. Mobility tends to favor the cloud because all users are effectively mobile or remote. A big differentiator with the cloud is it shifts risk from you to the provider.

It boils down to how much confidence you have in the underlying assumptions and the likelihood that things could significantly change. How long will the technology be viable? Will your users embrace all of the features? Will new features or capabilities be required? Will it continue to meet your requirements? Will your firm scale, acquire or downsize significantly? The on-premises model requires payment or commitment up-front, which means you accept these risks. Hosted UC is more flexible because you don't pay it all up front. Should you get it wrong or the provider not meet expectations, you can still change back to on-premises or switch to a different provider.

There is no universal answer to this debate, and on-premises largely remains the default approach. Cloud services can be very compelling. My primary advice is to expand your evaluation criteria beyond the known financial elements.

Learn more about the cost of on-premises and hosted UC:

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